Professor Kai-Sheng Song invites you to attend the Master's Project Defense of Jie Zhou

"How to Extract Probabilistic Information from Prices of Options and Their Underlying Stock"

Abstract:

In this talk, we will discuss some parametric and nonparametric statistical methods for extracting implied probability distributions from prices of options and their underlying stock. These methods include the nonparametric approach of histogram estimators of the risk neutral density and implied binomial trees for reconstructing implied distributions directly from options market data. Parametric modeling of the local volatility surface and fitting of a quadratic model to the volatility smile through implied volatility trees and volatility interpolation are presented. We will also discuss a mean-restricted normal mixture for the specification of the stochastic process for the underlying stock price, Merton jump diffusion model, and bi-power variation, if time permits.